Insights 
VT 
Key Points:
- AUD/USD rose 0.2% to $0.6502 after overnight high of $0.6519.
- Australia’s monthly CPI slowed to 2.1% y/y vs forecast of 2.3%, with core inflation at 2.4%.
The Australian dollar extended its modest recovery on Wednesday, buoyed by a cautious improvement in risk sentiment following a tentative ceasefire between Iran and Israel. This positive backdrop outweighed the drag from soft inflation data, which pointed to a weakening price trend across key consumer categories.
Australia’s monthly CPI fell 0.4% in May, pulling the annual rate down to 2.1%, below expectations of 2.3%. The trimmed mean—a core inflation gauge—eased sharply to 2.4%, its lowest since late 2021 and under the Reserve Bank of Australia’s (RBA) mid-point target of 2.5%. Housing costs, which spiked unexpectedly in April, cooled, while services inflation dropped to a three-year low of 3.3%.
Markets Lock in July RBA Cut
The CPI miss was enough to reinforce existing market sentiment around the RBA’s direction. Rate futures now assign a 90% probability to a 25-basis-point cut on 8 July. TD Securities brought forward its forecasted cuts from August and November to July and August, citing the breadth of inflation weakness.
Three-year Australian bond futures hit a two-month high of 96.760 before profit-taking kicked in. Meanwhile, 10-year yields eased to 4.1553%, far below the mid-May peak of 4.583%. This reinforces the expectation of a dovish shift.
If the RBA follows through with back-to-back rate cuts in July and August, the Aussie could remain under pressure in the medium term, especially against stronger peers like the euro. However, if the global risk mood stays buoyant, short-term pullbacks may be limited.
Technical Analysis
The Aussie dollar saw a steady climb from the 0.63741 base on 24 June, peaking at 0.65194 before consolidating into a narrow range. The price currently trades at 0.64985, with minor bullish bias supported by short-term moving averages beginning to flatten.
Picture: Momentum fades near key resistance at 0.6520, as seen on the VT Markets app
While the pair may range between $0.6470 and $0.6520 in the near term, the upside remains limited unless new macro drivers emerge. A move above $0.6552—the recent top—would require a risk-on surge or stronger commodity demand.
